We just got back from a week at Rehoboth Beach.
Had a wonderful time at Cape Henlopen State Park for the uncrowded beach, bike paths, and historical museum (Fort Miles gun emplacements used in World War II shore defense). Keep the tides in mind, lest you get grounded on a sand bar during low tide!
It was a much less hectic atmosphere than Ocean CIty MD, just down the coast where we usually go. The most overrated thing we encountered was a donut shop called the "Fractured Prune". Crowds waited half an hour just to get their order. When we tasted our donuts, the consensus among all twelve of us was that it was just a plain grocery store cake donut with some colorful stuff slathered over it. Definitely not worth the high price and long wait.